Vietnam Credit Climate: FiinGroup Analyzes Corporate Financial Strength and Growth Prospects Amidst the Covid-19 Impact

BIIA member FiinGroup is pleased to present FiinPro Data Digest #3 Report

This Report is part of “FiinPro Data Digest” series and prepared primarily for subscribers of FiinGroup’s financial information and data platforms. As noted in previous issues, FiinPro Data Digest focuses on analyzing financial data to give commentaries and findings with specific data-driven evidence in order to provide independent and in-depth perspective on securities and financial issues.

In FiinPro Data Digest #2, we conducted analysis on the quality of corporate earnings and growth. FiinPro Data Digest #3, meanwhile, focuses on analyzing data on corporate financial strength and growth prospects amidst the Covid-19 impact.

FiinPro Digest #3:

Covid-19 Pandemic: Assessing the Impacts from Corporate Financial Data Perspective

Non-financial public companies: Covid-19 pandemic has made negative impacts on growth and profit quality of these companies in Q1-2020 as well as their profit prospects for the whole year, in which:

Net revenue decreased slightly by 4.4%, but profit after tax plunged by 57.8% from the same period last year and 68.9% from the preceding quarter. If excluding two sectors worst hit by the Covid-19 outbreak (Travel & Leisure and Oil & Gas), profit after tax of the remaining sectors decreased by 27% YoY and 50.2% QoQ.

Besides its impacts on earnings growth, the ongoing Covid-19 pandemic also hurt the quality of corporate earnings. It is the deterioration in EBIT and EBITDA, which dropped 26.1% and 44.7% from the same period last year in Q1-2020 as a result of low EBIT and EBITDA margin.
Deteriorating earnings quality and negative cash fows from operating activities have weakened corporate ability to pay both principal and interest. In Q1-2020, interest expenses equaled to about 50% of profit before tax and interest. (Interest Coverage Ratio fell from 3.0 in Q4-2019 to 2.0 in Q1-2020.)
Under the circumstances, a number of certain sectors which seem to be resilient or less affected by Covid-19 outbreak still maintained high growth in Q1-2020 and have positive growth outlook for the whole year.

FiinGroup estimates the revenue growth of non-financial public companies at 2.5% in 2020 while the full-year decline in their profit after tax will slow to 12.1% from 57.8% in Q1-2020.

Banks: Despite strong decreases in revenue and profit of non-financial public companies, 18 listed banks still reported profit growth in Q1-2020. However, the full-year profit of these banks is on the same trend with corporate earnings.

In Q1-2020, profit after tax of 18 listed banks increased 3.4% agaisnt the same period last year, with considerable net interest margin and incomes from other operations. It is noteworthing that incomes from securities investments rose sharply.
There is inconsiderable change in non-performing loans (NPL) ratio as impacts of the Covid-19 loan restructuring under the new regulations of the State Bank of Vietnam have not yet fully imprinted.
According to FiinGroup, the Covid-19 impacts could be reflected in the following quarters. The NPL formation rate increased to 0.23% in Q1-2020, equivalent to the Q1-2018 height.
In 2020, profit after tax of these listed banks is forecast to drop 11.9% from 2019. However, management of the banks are still taking the Covid-19 impact under consideration in order to have appropriate adjustment in their business targets in 2020.

EPS growth forecast in 2020: FiinGroup forecasts EPS of VN30 to fall 5.2% in 2020 despite a 15.3% growth forecast made prior to the Covid-19 outbreak.

Price and Value: The market has been driven by new money flows and strong fundamentals of leading sectors and stocks. FiinGroup believes that the pursuit of fundamental-based investment principles with a focus on corporate financial strength and earnings prospects remains an approach that is hardly to be reversed in the post-Covid-19 era.

This Report is part of “FiinPro Data Digest” series and prepared for clients of FiinGroup’s services in general and subscribers of FiinPro Platform and FiinTrade Platform in particular.

The report is prepared by the Data Analytics team of FiinGroup’s Financial Information Division. A majority of data in this report was extracted from our FiinPro Platform which is currently used by a lot of local and foreign institutions.

We hope that this Report will provide insights not only to analysts at investment institutions and individual investors but also to credit institutions and relevant government agencies in working out measures or policies to lessen the Covid-19 impact on different sectors.